The Ministry of Defence has confirmed that it has reached an agreement with the Treasury on its future budget.

A tough but deliverable settlement has been achieved that assists the Treasury's savings targets while protecting military manpower, capabilities and a fully funded but efficient equipment programme. Further genuine efficiencies have been found which has ensured there will be no reductions in military output as a result.

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George Osborne says he has agreed a budget with the Defence Secretary Philip Hammond which will lead to a reduction in staff at the Ministry of Defence.

The government is understood to be keen to channel its resources into cyber defence which Mr Osborne described as "which is the new frontier in defence".

I have settled the Defence department, which people thought was going to be one of the biggest and most difficult challenges, so I have agreed with Philip Hammond a defence budget.

It's going to involve some tough choices. The civilian headcount is going to have to reduce in our defence department, we are going to have to renegotiate, with some of our big suppliers, the contracts.

But I can tell you there will not be a reduction in our military capability.

In fact we are going to be able to spend some more money on things like cyber, which is the new frontier in defence."

George Osborne has told the BBC's Andrew Marr programme that recent fines paid by some of Britain's biggest banking firms will be used to provide treatment and support to injured soldiers.

I want to make sure that as a society we don't forget about these people long after the war is over so we are committing for the rest of these people's lives to support the military covenant, to support them, to go on spending £10 million a year on these sorts of causes.

We can do this in part because we are using the money we have taken off bankers involved in the Libor scandal. So the people who demonstrated the very worst of British values in the Libor scandal, in the City, are now supporting those who have demonstrated the very best of British values.

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The Chancellor is set to test Ed Miliband's plan for the economy. Credit: Joe Giddens/PA Wire/Press Association Images

Labour leader Ed Miliband has announced that he will not be able to reverse any of the Chancellor's cuts in day-to-day spending, as George Osborne prepares to attack the Opposition's austerity programme.

Osborne will tell MPs on Wednesday: "Three years ago Labour tried to scare the country about the pain to come if any Government actually to dared to cut spending and borrowing.

"But their predictions haven't come true. They said crime would soar if we saved money from police budgets - it's fallen. They said saving money in the Border Agency would stop us reducing immigration but immigration is down by a third.

"They said the private sector would never make up for jobs lost in the public sector but it has done three times over. They were wrong last time so don't believe the same old scare stories this time."

The Chancellor is expected to tell MPs on Wednesday that the UK economy is healing but also enforce a new round of cutbacks in the Whitehall budget.

Britain is moving from rescue to recovery. But while the British economy is leaving intensive care; now we need to secure that recovery.

Full recovery won't be easy but I won't let up in my determination to put right what went so badly wrong. We are already making progress: the economy is growing, more than a million new jobs have been created by British businesses and the amount the government has to borrow each year - the deficit - is down by one third.

But there's more we have to do - it's time for the next stage of our economic plan.

We're saving money on welfare and waste to invest in the roads and railways, schooling and science our economy needs to succeed in the future.

I know that times are still not easy for families. But we have a clear economic plan. We've stuck to it. It is working. And I'm determined to go on delivering it.

Now, together, we're moving Britain from rescue to recovery let's build an economy that works for everyone.

Chancellor George Osborne will claim the British economy is "leaving intensive care" as he unveils his fresh round of spending cuts for Whitehall.

Mr Osborne will deliver his spending review on Wednesday, setting out £11.5 billion of cuts in Government departments in the year after the next general election.

Alongside the cuts the Chancellor will announce plans for an infrastructure plan to "power Britain back into the economic premier league", using savings to invest in roads, railways, education and science.

Final details of the spending review were still being worked out, with reports suggesting some ministries, including Vince Cable's Business Department, were yet to agree their settlements.